German jobless total hits record 4m total

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The Independent Online
DIANE COYLE

Economics Correspondent

German unemployment reached a new post-war record of almost 4 million last month. A shock increase during February raised the spectre of recession in Europe's biggest economy.

Economists predicted that unemployment would continue to rise for at least several more months, even though many expect the Bundesbank to cut its key discount rate within weeks. Ralph Suppel, at JP Morgan in Frankfurt, said: ``The unemployment number will confirm to the Bundesbank that the economy is heading for a slump and give them more scope to ease monetary policy.''

Figures for Germany's GDP today could show that the economy contracted in the final quarter of 1995. The first quarter of 1996 is likely to turn out even weaker, and two successive quarters of negative growth would put the economy formally in recession.

The Government's official forecast predicts growth of 1.5 per cent this year, but others believe it will be lower. In a sign of the increasing gloom about prospects, the influential publication Wirtschaftswoche today forecasts zero growth.

Slow growth and rising unemployment will put additional pressure on the government's budget. The deficit last year amounted to 3.6 per cent of GDP, above the 3 per cent limit set by the Maastricht Treaty. The European Commission said yesterday that slower growth would make it harder for EU states to qualify for the single currency. It published a lower forecast of EU growth this year, down to 2 per cent from 2.6 per cent, but called this a ``pause''.

``Meeting the Maastricht target is at the top of the agenda. There will be no money for solutions to unemployment,'' said Holger Fahrinkrug, an economist at investment bank UBS in Frankfurt. The pan-German unemployment total, adjusted for normal seasonal fluctuations, jumped by 107,000 to 3,965,000 last month. The increase was more than twice the figure that economists had forecast. The unadjusted total, the focus of attention in Germany, climbed to 4,270,000 from 4,159,000 in January.

The seasonally adjusted unemployment rate was 10.3 per cent compared to only 7.9 per cent in the UK but 11.8 per cent in France. The Banque de France is exected to cut its official interest rates today.

The scale of the increase in German unemployment last month was partly explained by unusually harsh weather hitting the construction industry. Construction output , already in decline, is likely to drop 3 per cent in 1996 according to a trade association forecast.

Gunter Rexrodt, the Economics Minister, said: ``The current level of unemployment in Germany is an unbearable burden.'' He said the economy was not in recession, but added that wage demands had to be reasonable.

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